Studies of the effects of channel management and customer management integration with ERP systems indicate that the greater the level of pricing, costing, and quoting system collaboration, the higher the return on investment (ROI) of these systems. Studies specifically suggest that when five or more systems are integrated together, there is a corresponding increases of up to 30% in profitability as a result (Rosenbloom, 2007). Analyzing this dynamic of channel management and customer management systems integration based on analysis from AMR Research, Forrester Research and Gartner Group is compiled in The Roadmap to Value for ERP-enabled Customer Management Strategies, which is Figure A in the Appendix of this document. Most noteworthy about this analysis is the fact that there are causal relationships between the streamlining and improving of channel management and customer management strategies and financial performance. The extent to which a small business can attain this level of performance finally is dependent on how effective they are in integrating customer-facing and channel-facing processes in their ERP systems.
Consider how a maturity model emerges from the extent of systems and process integration and its impact on the financial performance of a small business. At the lowest layers of this maturity model there are only manually-based processes that are managed through time-consuming and often error-filled series of procedures that are sporadic in their performance at best. Manually entering quotes into a system, or the manually-based developed of special pricing requests is an example of the type of processes at this level as well. At the second level is department-wide collaboration. The use of Microsoft Outlook is often the preferred approach to managing collaboration with channel partners and with the sales force. At the third level, there is cross-department and channel management integration. This third level is where ERP system integration begins to contribute to the financial performance shown in Figure A of the Appendix. This third level is also called the Collaborating level or phase. ERP systems at this third level are often defined by their support of one or just a few channels of distribution. The result is that only limited financial performance improvements are made over time. The uppermost layer of the model with the Orchestrating or Multichannel Federation Layer and this is where ERP system integration to customer management and channel management systems makes the greatest financial impact. The following ERP Integration Model illustrates the effects from a process maturity and information maturity standpoint on channel management and customer management processes. This maturity model's structure is predicated on the AMR Research Demand Driven Supply Network Model (Barrett, 2007) and is shown in Figure 1.
Figure 1: ERP Integration Model
For small businesses their ability to attain the level of Orchestrating in the ERP integration Model shown there must be a clear definition of just what the customer-facing objectives are, how they will be measured through analytics and business intelligence (Trott, Hoecht, 2004), and the critical integration link of channel selling strategies to supply chain constraints defined (Vlachopoulou, Manthou, Folinas, 2005). This requires much synchronization of not only selling strategies, but supply chain, procurement and manufacturing strategies as well. The synchronization of all of these factors is managed by the ERP system. As can be seen from the maturity model when applied to small businesses, the perception of these smaller enterprises having less complexity is not true. In fact for a small business to attain the Orchestrating layer of the ERP Maturity Model there has to be intensive process, system, and role-based definitions all in synch with each other. All this level of orchestration on a budget that is already severely strained, small businesses often have performance levels in the Anticipating and Orchestrating levels of performance. For lack of synchronization between customer strategies and manufacturing, small business ERP systems fail (Allen, 2008). A critical success factor for any ERP system in a small business is to focus on how to integrate these customer-facing strategies and their supporting systems including Customer Relationship Management (CRM), Partner Relationship Management (PRM), pricing, quoting, price exception management, and critically important, ATP and CTP for managing expectations with customers. The integration of these systems to support the critical business processes needed for attracting, selling and serving customers can in many industries mean the difference between profitable or growth or not, as is shown in Figure A of the Appendix.
Supply Chain Integration, Procurement and Sourcing
In small businesses, cash is king. The decision to go with an ERP system in the first place is to financially sustain unique competitive advantages through more efficient use of data on customers, logistics, operations, services, and supply chains. Each of these functional areas also significantly impact inventory management, order management and manufacturing, which are the second through fourth most common functional areas that lead small businesses to adopt ERP systems. Financially measuring these functional areas and continually improving their performance is the essence of lean manufacturing and lean process improvements (Holmstrom, Hameri, Nielsen, Niels, Pankakoshi, Slotte, 1997). Logistics as a functional area related to supply chains also often delivers significant cost and time savings over time (Rizzi, Zamboni, 1999). Yet ironically 49% of all small businesses choose to streamline their supply chain and logistics systems at all (Allen, 2008). Only 46% choose to even integrate logistics processes into ERP systems (Allen, 2008). This results in manually-based supply chain and logistics systems being integrated only at the process level to ERP systems, and the result is often errors and costly inventory management mistakes. Between process, discrete and services small businesses, discrete manufacturers choose to automate supply chain and logistics functions as part of their ERP systems. It is surprising that given what a high percentage of a small business' working capital is tied up in inventory that they would choose to leave supply chain management, planning and logistics in a manually-based series of workflows.
How ERP Systems Can Financially Sustain Competitive Advantage in Small Businesses
The hard reality is that the majority of ERP system installations, regardless of company size, fail (Nah, Tan, The, 2004). The larger the company, the higher the failure rate (Allen, 2008). With so much critical financial information in the balance for running any company, what is clearly needed are a series of best practices or benchmarks that small businesses can use to navigate through the ERP planning, development, launch and use phases of these systems. Despite the failures specifically mentioned in customer management and channel management systems integration, the lack of support for demand-driven strategies for better serving customers, and the lack of supply chain integration, small businesses are in fact financially sustaining competitive advantages through the use of ERP systems.
The first half of this document specifically discusses why ERP systems fail in small business and also fail to deliver financially sustainable competitive advantages over time. In this section the analysis shifts to those examples of best practices, or the highest levels of performance attained, through the use of ERP systems in small business and their integration into key customer focused and channel management focused strategies. An analysis of how ERP helps small businesses sustain their competitive advantages through supply chain and logistics integration is also discussed. Adoption of ERP systems throughout small business succeeds when there is a strong vision of the systems' role as a means to better sell, serve and support customers while maintaining high levels of internal process efficiency (Chou, Chang, 2008). The highest performing ERP systems then can attain a unique balance of being customer-centered on the one hand while striving for internal process efficiencies on the other (Holmstrom, Hameri, Nielsen, Niels, Pankakoshi, Slotte, 1997). For the small business owner or CEO of a small company looking to their investments in ERP systems to financially sustain their competitive advantage, this delineation between customer-focused and channel-focused strategies on the one hand and internal process efficiencies on the other is critical. Small businesses that sustain their competitive advantage financially are able to strike a balance between being customer-driven and attaining internal efficiency. Lean manufacturing techniques including Six Sigma, Total Quality Management (TQM) and Just In Time (JIT) are successfully used in smaller companies to re-orient their internal processes towards being more focused on customer needs (Zakuan, Saman, 2009). In effect lean manufacturing strategies are re-defining how small businesses redefine supply chain, logistics, sourcing, and services, all oriented towards being responsive to the customer first (Reichhart, Holweg, 2007). To the extent ERP systems are used for re-aligning supply chains and internal systems both to be more responsive to customer demands is the extent to which they are seen as being demand driven (Barrett, 2007).
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